Its Not A Profit Until You Exit The Trade Page 2

Step Two: Watch our stock on a daily basis and continue to extend our trend line as the stock moves higher. While extending the trend line we do not want to change the angle at which the line is progressing. If the stock begins to break through our line we would proceed to step three.

Step Three: You will notice on the chart shown below that our stock's momentum is beginning to slow, and its daily bars are beginning to break through our trend line. It may help to envision the first part of the stock's move as a golfer teeing off. The stock shot off the tee and was moving upward and outward with increasing momentum. Now you will notice that the stock, like the golf ball, is beginning to slow, and once the momentum is lost will more than likely begin to fall back to earth.

Chart Compliments of TC2000.com

Step Four: At this point you will also want to watch for increased volume combined with the slowing momentum. This increased volume is generally an additional sign of a potential reversal. This volume increase generally comes from investors trying to get in on the up-trend too late and the investors who have been in since the beginning selling their positions out. Once the investors buying in late realize that the trend is over, they will switch sides, joining the sellers and driving the stock lower.

Step Five: If a trend is truly slowing, it will happen over a number of days. Do not be fooled by single days that spike below our trend line. Such days are not uncommon and should be disregarded, as long as our trend resumes on the following day. Once a true slowing in momentum has been identified (especially if it is accompanied by increased volume), we would want to take at least half of our money off the table and lock in a profit. The reason that we wouldn’t take all of our profits at this time is because occasionally a stock will begin to show weakness for a short period of time and then come back and resume its upward trend.

Step Six: In step six we have taken half our money off the table and will want to watch our stock very closely. If the stock continues to trade sideways we would probably stay in the trade, but if the weakness begins to gain momentum to the down side we would take the rest of our money off the table.